FN3000- A company is trying to develop an asset- financing plan
A company is trying to develop an asset- financing plan. The firm has $400,000 in temporary current assets and $300,000 in permanent current assets. The company also has $500,000 in fixed assets. Assume a tax rate of 40 percent. I need to construct two alternative financing plans for the company . One of the plans should be conservative, with 75 percent of assets financed by long-term source, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sourced. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Also given that the earnings before interest and taxes are $200,000, calculate earnings after taxes for each of the alternatives. and What would happen if the short and long-term rates were reversed?
